Over the past nine years, gold has managed to post successive increases in its annual average price, navigating the choppiest of waters.

In the first six months of this year, against the backdrop of very volatile global equities markets, gold bullion has gained over 13 per cent to finish at US$1,242 per ounce at the end of last month on the back of continued investor concerns over the Greek debt crisis and the prospect of contagion.

With gold hitting all-time highs in several currencies in recent weeks including the euro, we thought it would be worthwhile to remind investors of the fundamental factors which may drive the gold price in coming months and years.

Demand side

We continue to see strong investment demand for gold, with investors viewing gold, a real asset, as a hedge against medium-term inflationary pressures and potential US dollar weakness, while also providing important diversification benefits as investors continue to look to gold as a safe haven asset and an alternative currency in the face of volatile currency markets.

These issues, in our view, may take some time to resolve.

Jewellery demand, which has in the past made up the largest component of total consumption, has been weak during the credit crisis.

It was down by around 20 per cent last year but has remained strong in emerging markets and is likely to grow in the future.

Indian gold imports were 30 tonnes in March, an 84 per cent increase compared to last year. It is believed that this may have been driven by restocking by Indian jewellers in advance of the Indian wedding season.

An estimated one million weddings were believed to have taken place in India between April and May alone.

The World Gold Council announced that they expected the demand for gold in China to double over the forthcoming decade.

They forecast this coming from both jewellery and investment demand, as the world’s fastest growing consumer of the yellow metal has more than doubled its share of global demand in the past seven years - from 5 per cent to 11 per cent.

Supply side

Since mine supply peaked in 2001, the gold mining industry has been struggling to grow production.

Despite an increase of 6 per cent (by 144 tonnes) last year, which was mainly driven by the Grasberg Mine in the province of Papua in Indonesia, there is little material sign of growth during the coming few years.

In fact, there are few operations next year and in 2012 of notable size and others are exhausted so the growth in supply we saw last year may be offset by declines elsewhere.

We estimate that the all-in cost for a new ounce of production is between US$850 to US$900 per ounce once exploration, capital expenditure and operating costs are taken into account.

In addition, those areas where gold mineralisation is being discovered tend to be in regions of higher political risk.

At the current price there is not sufficient incentive for gold mining companies to bring on significant amounts of new supply.

Central Banks

A key recent development is the strategic shift in the attitude of the world’s Central Banks towards gold.

We have seen developing countries (most notably, China and India) increasing their gold reserves as they seek to diversify their Foreign Exchange Reserves, in particular to reduce their exposure to the US dollar.

It is also notable that recently there has been a distinct lack of gold supply into the market from European Central Bank and the only known vendor has been the International Monetary Fund (IMF).

Over the past few years, around 400 tonnes of gold has typically been sold into the market by both Central Banks and the IMF.

In this year so far, the IMF sold limited volumes, indicating that central banks are increasingly reluctant to sell down their gold holdings.

The conclusion that can be drawn from this is that gold is now seriously considered by Central Banks as a monetary asset and a useful source of diversification in a way that has not been seen for at least the last two decades.

Whilst the immediate impact of this strategic shift on the gold price may be limited to possible supply curtailments, the long-term implications are extremely supportive as looking back over the last fifty years.

Central Banks have tended to be a good indicator of broader investor appetite for gold.

Still a safe haven asset

Market fundamentals suggest that gold prices are well supported.

Whilst uncertainty remains in financial markets and concerns shift from corporate debt to sovereign debt, investors may continue to look to gold as a safe haven asset and an alternative currency as gold reaches all time highs in euro and sterling terms.

Also, investors are increasingly looking to gold as a hedge against inflation and potential US dollar weakness.

In terms of supply, long term fundamentals remain tight with little sign of any material increases in mine production, and central bank supply is also at reduced levels which for many years was a notable source of supply.

The writer is managing director and joint chief investment officer of the natural resources team at BlackRock.

Source: Today Online

Gold has been on the minds of investors ever since the world’s financial system went south in 2007 with its safe haven status looking like a godsend.

The seemingly never-ending series of share market corrections and other shocks - the European debt meltdown being just the latest - has only served to enhance the precious metal’s appeal.

Last Friday, gold rallied to an all-time high above US$1,262 an ounce thanks to the weak US dollar and disappointing American economic data.

That’s a long way from US$905.10 an ounce recorded last July, when it was at its lowest in 12 months. Even while it hovers at record levels, some believe its outlook remains promising.

Commodities investor Jim Rogers says that gold will go well over US$2,000 in the next decade while the chief investment strategist at UBS Wealth Management Singapore, Mr Kelvin Tay, targets a price of US$1,500 an ounce for the next 12 months.

On a short to medium-term outlook, Citibank forecasts gold to be at the US$1,250 level, said Mr Shrikant Bhat, head of wealth management, Citibank Singapore.

He also expects gold prices to consolidate around US$1,209.20 an ounce by the end of this year.

If you are considering jumping on the gold bandwagon, there are a number of options available, from owning gold bars and coins to investing in exchange-traded funds and mutual funds.

The Sunday Times spoke to industry experts to find the costs and mechanics of the various options.

Gold bars and bullion coins

United Overseas Bank is the only local bank to sell physical gold.

Its kilobars - they weigh 1,000g and are 999.9 fine gold or 24-karat gold - are the most popular.

The 50g Pamp bars as well as half-ounce bullion coins are also snapped up.

Switzerland-based Produits Artistiques Metaux Precieux (Pamp) is a popular independent refiner of precious metals.

The coins are sourced from Canada and Australia.

UOB sets its buying and selling prices at least once a day.

Last Friday, a kilobar of gold cost $59,752, a 50g Pamp was $3,091 and a half-ounce coin $1,037.

And while popular in markets like Hong Kong, trading in physical gold is less popular among Singaporeans as the prices factor in the 7 per cent GST.

Clients who have bought gold from UOB can sell it back at the applicable buying rate.

Last Friday, UOB would have bought back a kilobar for $55,723 - 6.7 per cent lower than the sale price. UOB’s indicative daily selling and buying prices are available on its website.

Costs for procuring the physical commodity do not stop there. Storing the gold incurs expenses as well.

A Cisco safety deposit box costs $99 a year for an extra-small locker. Larger lockers can cost up to $699 a year for a space of 38cm by 25cm by 60cm.

Some jewellers and goldsmiths sell gold bars, usually in sizes of 10g, 50g and 100g. Prices are set daily on a per gram basis exclusive of GST.

Following recommendations from the Singapore Gold Association, goldsmiths usually take an 18 per cent cut of the value of the gold item when they buy it back and if the customer intends to sell it to purchase other jewellery.

If the customer wants cash, a further deduction is made on the remaining value at the discretion of the goldsmith.

At Poh Heng, for example, a 10 per cent cut is made after the 18 per cent deduction, amounting to a 26.2 per cent loss right away.

Spreads are usually in the 20 per cent to 26 per cent range, goldsmiths told The Sunday Times.

The price of gold on June 18 was set at $68 per gram exclusive of the 7 per cent GST.

Gold savings accounts

UOB and Citibank customers can open a gold saving account, allowing them to invest directly in the metal without actually owning the physical item.

UOB customers can buy and sell gold at prevailing market rates. The minimum transaction and maintenance requirement for its gold savings account is 5g of 999.9 fine gold.

Based on indicative pricing rates on its website, this would cost $278.55.

Transactions are done in units of 1g, at a minimum of 5g per transaction.

Holdings in the account are not subject to GST and can be exchanged for cash.

An administrative fee is charged: either 0.12g of gold per month or 0.25 per cent of the highest balance per month, whichever is higher.

Fees are subject to GST, which will also be deducted from a user’s account in grams of gold.

At Citibank, users have to set up an account with a minimum requirement of 30 ounces of gold bought at market rates.

Taking the example of a US$1,258 an ounce price, this would amount to US$37,740.

Trades are done in blocks of 30 ounces. No administration fees are charged.

Gold certificates

Gold certificates, offered only by UOB, are more popular among buyers and allow for ownership of physical gold without any physical movement of the metal. This means it is free of GST.

Issued in multiples of 1 kilobar, or kilocert, one certificate can account for at most 30 kilobars of 999.9 fine gold.

An annual administrative charge of $30 per kilobar and a certificate fee of $5 per certificate are levied.

Certificates can be traded at UOB according to daily prices.

Last Friday, a single unit gold certificate sold at $55,843. The bank would buy it back at $55,743 - a 0.17 per cent difference.

Customers can also exchange their certificates for gold kilobars with two days’ notice. The bars would be subject to GST.

Exchange-traded funds

Retail investors can use exchange- traded funds backed by commodities or gold.

These are precious metals that are regulated and traded in the form of securities on stock exchanges. In most cases, an individual would need only to set up an account with a brokerage and begin trading.

Using firms such as DBS Vickers, OCBC Securities or UOB Kay Hian means customers would have to pay brokerage or trading fees.

At DBS Vickers, trades that are executed directly without the use of a broker attract commission charges of $25 or 0.28 per cent of the value transacted, whichever is higher.

Minimum deposits when new accounts are created are decided through discussions between an assigned broker and client.

When going through a broker, a client pays a minimum of $40 or 0.5 per cent of the value of the trade, whichever is higher. The 0.5 per cent applies to trades under $50,000.

For trades of between $50,000 and $100,000, charges of 0.4 per cent apply, and above that, the charges are 0.3 per cent.

At OCBC Securities, a minimum account deposit of $2,000 is required to set up an account.

Commission on non-broker assisted trades is $25 or 0.275 per cent of transacted value, whichever is higher. The 0.275 per cent refers to trade values of up to $100,000.

For trades above $100,000, commission would be $25 or 0.2 per cent of transaction value, whichever is higher.

Broker-assisted charges are similar to those of DBS Vickers, with the exception of 0.25 per cent charges on values above $100,000.

Across the industry, clearing fees are 0.04 per cent and SGX access fees are 0.0075 per cent.

All charges are subject to GST.

Mutual funds

There are not many mutual funds available here offering exposure to precious metals.

The ones available include UOB Asset Management’s United Gold and General Fund and Schroder’s Alternative Solutions Gold and Metals Funds.

As at April 30, the United Gold and General Fund invests 79.87 per cent of funds in gold and precious metals-related equity such as mining stocks.

The fund size was $263 million with a return of 44.5 per cent.

Available through banks and brokers, the minimum initial investment is $1,000.

Fees include a 1.5 per cent annual management fee and a 4 per cent subscription fee.

When bought through distributors like Fundsupermart, for example, a 0.85 per cent initial sales charge applies.

Schroder’s Alternative Solutions Gold and Metals Funds gives investors direct exposure to the movement of prices in the metals by investing mainly in futures.

The fund, which invested 64.8 per cent of holdings in precious metals as at the end of last month, requires a minimum investment of US$10,000 (S$14,000).

About 20 per cent to 75 per cent of funds can be invested in gold.

As of the end of last month, the size of the fund here stood at more than $20 million while globally it was US$185.6 million.

Fees include a maximum initial levy of 5 per cent of gross investment amount. Annual management fees stand at 1.5 per cent and performance fees at 10 per cent of the difference if the net asset value per share exceeds US$10.

The net asset value per share is US$9.80 currently.

Source: Straits Times (Subscribers only)

THE price of gold has charged to a new high of nearly US$1,055 (S$1,466) an ounce amid speculation that it could hit US$2,000 in the next decade.

Local investors are joining a global gold rush by pouring cash into the precious metal owing to inflation fears and concern that major currencies such as the US dollar will keep falling in value.

They worry that spending sprees by the United States and other governments to tackle the global recession will undermine currency values and fuel inflation. Gold is regarded as a safe-haven investment, and a hedge against inflation or rising prices.

Mr Wong Weiyi, a research analyst at unit trust distributor Fundsupermart, said gold typically rises in price when the US dollar is falling and vice versa.

The price of gold has soared 19 per cent since the start of this year. At 5pm yesterday, it was 1.1 per cent higher than Wednesday’s close of US$1,044.20. Yesterday was the third straight day it hit a record high.

Local investors are charging into gold investments. Fundsupermart’s top three funds with gold exposure had averaged a 38 per cent return before fees so far this year, as of Monday. Sales of the three funds last month were 3.7 times that in August.

UOB Asset Management’s United Gold & General Fund, which invests in gold exploration firms, is up 41.18 per cent before fees so far this year.

Mr Tan Junren is one gold winner. He has been investing in gold-related instruments since March last year. He declined to reveal exact figures, but spoke of a ’sizeable’ profit. ‘I think there might be a correction of prices in early November but I’m looking at this as a long-term investment and will invest more once the timing is right.’

In an interview with Bloomberg, noted commodities investor Jim Rogers said it was possible gold would top US$2,000 an ounce in the next decade.

He said he may increase his holdings, although he cautioned against buying gold at record-high prices. ‘Gold has hit a new high and I don’t like to buy something at record prices unless there are extremely strong fundamental reasons,’ he told Reuters.

Local jewellers are also getting their share of the gold-crusted pie.

Sales manager Patrick Yeo of Poh Heng Jewellers at New Bridge Road said the number of people selling their gold had jumped by 20 to 30 per cent over the past year. But he has yet to see an increase in the number of people buying physical gold as an investment. ‘The market is bad, and with gold prices going up, people are tightening their belts instead.’

Investors can get in on the gold rush by buying exchange-traded funds linked to the value of the precious metal. They can also put their money into gold-related unit trusts. Other means include purchasing gold certificates which indicate ownership, allowing investors to buy and sell without the hassle of physically transferring the metal.

Source: Straits Times (subscribers only)

LONDON: Gold rose to a record high on speculation that inflation will accelerate and erode the value of the US dollar, boosting the appeal of the precious metal for investors seeking to preserve their wealth.

Gold was also boosted by a sharp drop in the greenback on a report, later denied, that Gulf Arab states were considering abandoning it for oil trading. Gold futures climbed as high as US$1,038.95 (S$1,453.40) an ounce in New York, topping the previous record of US$1,033.90 in March 2008.

The spot price headed for a ninth straight annual gain, the longest rally since at least 1948. The US dollar fell as much as 0.6 per cent against a basket of six major currencies.

‘Gold is acting like the ultimate currency,’ said Mr Chip Hanlon, president of Delta Global Advisors in Huntington Beach, California. ‘Everyone’s concerned about the dollar, but it’s not like you can hate the dollar and fall in love with the euro or the yen.’

The reason is that central banks are following the same monetary course and trying to stimulate and inflate their way back to growth.

‘Even without the weak US dollar, gold is performing quite well,’ said senior Commerzbank trader Michael Kempinski.

Gold yesterday hit six-month highs when priced in sterling and euros, breaking above \244700 (S$1,445.20) an ounce for the first time since early April.

Mr Peter Fertig, a consultant at Quantitative Commodity Research, said the final quarter was typically strong for gold, due to rising jewellery demand and as the US dollar is seasonally soft.

BLOOMBERG, REUTERS

Source: Straits Times (subscribers only)

Dear readers,

I’m selling off a portion of my bullion assets to finance another asset investment that I’m taking up soon.

The following bullion are up for grabs:

1) 100 x 1oz bullion Silver American Eagles (in tubes of 20s) (SOLD)
2) 10 x 1oz bullion Pan American Silver Bars (SOLD)
3) 1 x 1oz Perth Mint bullion gold bar (sealed) (SOLD)
4) 1 x 1oz bullion Singapore Lion gold coin (SOLD)
5) 1 x 1oz bullion Canadian Maple Leaf gold coin (SOLD)
6) 2 x 1oz bullion Australian Kangaroo gold nugget coin (SOLD)

For gold bullion, looking at the average of the buy & sell price in the UOB website.
For silver bullion, looking at S$33 per oz but S$32 per oz if buyer takes all 110oz.

If you are looking at increase your gold and silver investment, now is the time that you’ve been waiting for!

Please email me at chris@bulliongold.net to make your offer.

Hi everyone,

It’s that time of the year where friends and family gather together and have a glorious spread of turkey and ham. It’s also a spirit of giving and sharing. Remember to make some donations while on your way to the party!

Consider rewarding your loved ones with a shiny gold or silver bullion coin as a Christmas present.

How are you celebrating this Christmas?

I’m going to be have a potluck party at one of my classmate’s place. There’s going to be lots of food and drinks to go around while we party our way through the night.

Here’s wishing everyone a Merry Christmas and lots of joy in the year to come.